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Presenting The FHA Product Workshop

Presenting The FHA Product Workshop. Fran Wagner National Trainer 5151 Corporate Drive Troy, MI 48098 1 (800) 945-7700 Wholesale.Flagstar.Com. TODAYS AGENDA  . 1. Brief Introduction  2. Flagstar Bank’s Mission and Responsibility 3. How To Sell the FHA Product & Recent Changes

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Presenting The FHA Product Workshop

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  1. PresentingThe FHA Product Workshop Fran Wagner National Trainer 5151 Corporate Drive Troy, MI 48098 1 (800) 945-7700 Wholesale.Flagstar.Com

  2. TODAYS AGENDA   • 1. Brief Introduction  • 2. Flagstar Bank’s Mission and Responsibility • 3. How To Sell the FHA Product & Recent Changes • 4. Borrowers, Co-borrowers and Citizenship • 5. Credit, Credit & Credit • 6. Income Sources • 7. Debts & Liabilities • 8. Excessive Ratio Compensating Factors • 9. Assets & Funds to Close • 10. Appraisal Updates and Revisions

  3. Flagstar’s Responsibility to the Borrower • Eliminate the risk of a future delinquency, default or foreclosure Flagstar’s Responsibility to HUD • Help support community development • Maintain excellent understanding of products and updates • Protect their insurance fund with quality credit and property analysis • Evaluate credit performance through the Neighborhood Watch Credit System Flagstar’s Responsibility to the Lender • Provide credit and property analysis based on FHA guidelines • Provide training tools with up-to-date changes, forms and disclosures • Provide excellent customer service with quality and knowledgeable underwriting staff • Provide state-of-the-art technology and credit decisions in a timely manner • Provide credit decisions to protect lender from being terminated by the Neighborhood Watch System

  4. How to Sell the FHA Product • Low down payment. • Borrower investment of only 3% • Gifts are permitted for entire 3% borrower investment • Gifts are permitted for all closing costs & pre-paid items • Seller paid contributions permitted up to 6% of sales price • Down Payment Assistance (DPA) programs permitted • Seller-Funded DPA not allowed if base loan amount exceeds $362,790. • Seller-Funded DPA in declining markets – Minimum Credit Scores for all borrowers = 620 • Permits combination of DPA, seller contributions and gifts funds • Mortgage Insurance Premiums based on combined risk factors of LTV and Credit Scores • Up-Front Mortgage Insurance Premium (MIP) can be financed • Base loan amount (+) Up-Front MIP (=) Gross Loan Amount • UFMIP and Annual MIP are calculated using the base loan amount and the appropriate basis points • Annual MIP is paid monthly and is lower than many conventional and EA programs • No reserves required unless 3-4 unit property or non-traditional credit

  5. States with Low and High Average Closing Costs

  6. Maximum Loan-to-Value Percentages LOW CLOSING COST STATES 98.75% For properties with values/sales prices  $50,000 97.65% For properties with values/sales prices > $50,000 – $125,000 97.15% For properties with values/sales prices > $125,000 HIGH CLOSING COST STATES 98.75% For properties with values/sales prices  $50,000 97.75% For properties with values/sales prices > $50,000 PART 1 A. Lesser of Sales Price or Value $______________ B. Appropriate Loan to Value X______________ C. Maximum Base Loan Amount =______________ PART 2 D. Minimum Cash Investment: A (x) 3 Percent $______________ E. Minimum Down Payment: A (-) C $______________ F. Minimum Borrower Paid Closing Costs: D (-) E $______________ G. Borrower’s Minimum Cash Investment: E (+) F $______________ Calculating the Maximum Loan Amountfor an FHA Purchase

  7. Risk Based Premiums for FHA Mortgage Insurance

  8. Risk Based Premiums for FHA Mortgage Insurance

  9. How to Sell the FHA Product • No income limits • Permits non-occupying co-borrowers without separate qualifying ratios • Minimum credit score of 580 (620 if located in declining market using DPA) • Credit scores between 550-579 are eligible with a Total Scorecard “Approve” or “Accept” response - Applies to Purchases and Rate & Term Refinances only • Minimum credit score of 580 on Cash-Out refinances over 85% LTV, regardless of Total Scorecard response • Liberal qualifying ratios of 31/43 • Automated underwriting available through the FHA Total Scorecard System • Provides CREDIT waiver with “Accept” or “Approve” responses through Total Scorecard • Provides RATIO waiver with “Accept” or “Approve” responses through Total Scorecard • Does not require collections to be paid off as condition of approval on “Accept” or “Approve” responses through Total Scorecard • Allows “Manual” underwriting for a “Refer” response. Refer does not mean REJECT !

  10. Mortgagee letter 2005-15Total Scorecard Tolerance Levels • Does not require rescore when the verified reserves are no more than 10% less than amount listed on 1003 • Does not require rescore when the verified income is no more than 5% less than income listed on 1003 • Does not require rescore when the ratios do not result in more than a 2% ratio increase due to estimated taxes & insurance vs. the actual taxes & insurance

  11. Mortgagee Letter 08-16Risk-Based Mortgage Insurance Premiums • Both UFMIP and Annual MIP are now based on the borrower’s Decision Credit Score and LTV – Flagstar Bank score floors remain in effect, regardless of the the availability of mortgage insurance • LTV is calculated by dividing base loan amount by the lesser of the sales price or appraised value • Decision Credit Score is calculated using the following methodology: • Three available scores – middle value is used • Two available scores – lower value is used • One available score – use that score • Multiple Borrowers – use decision credit score for borrower with LOWEST decision credit score • Multiple Borrowers/One Without Credit Score(s) – use highest UFMIP/Annual Premium Calculations • If mortgage insurance premiums are higher for borrowers using non-traditional scores, use non-traditional UFMIP and Annual MIP calculations • If mortgage insurance premiums are higher for borrower that has credit scores, use UFMIP and Annual MIP calculations for borrower with credit scores • If one or more borrowers fall into an LTV/Decision Credit score category for which MI is not available, it’s acceptable to remove the non-qualifying borrower. Remaining borrower must qualify for loan on his or her own. UFMIP and Annual MIP are determined using remaining borrower’s decision credit score

  12. Mortgagee Letter 08-16Risk-Based Mortgage Insurance Premiums • Borrowers without credit scores must provide acceptable non-traditional credit references according to requirements in ML 08-11 • Borrowers who meet UFMIP/Annual Mortgage Insurance requirements but receive a Total Scorecard “Refer” Response must meet all other FHA qualifying guidelines related to credit, ratios, compensating factors, etc. – Loans may not be approved solely based on the availability of risk-based MI for a decision score/LTV combination • First-time homebuyers • Borrower has had no homeownership in most recent three years prior to purchase agreement execution or • Borrower has only owned a principal residence with a former spouse while married or • Borrower has only owned a principal residence not permanently affixed to a permanent foundation or a property that was not in compliance with state, local, or model building codes and cannot be brought into compliance for less than the cost of constructing a permanent structure

  13. Mortgagee Letter 08-16Risk-Based Mortgage Insurance Premiums • Refinance Transactions • Rate and Term Refinances, including FHA to FHA and Conventional mortgages that are current at the time of refinance – UFMIP/Annual MIP are calculated using new decision credit score and LTV and Risk-Based Premium Charts in effect at time of refi • Cash-Out Refinances - UFMIP/Annual MIP are calculated using new decision credit score and LTV and Risk-Based Premium Charts in effect at time of refi • FHA Secure for mortgage loans that are currently delinquent • UFMIP is 225 basis points for all LTVs and credit scores • Annual MIP is 55 basis points for all credit scores and LTVs > 95% • Annual MIP is 50 basis points for all credit scores and LTVs 95% or less • First subsequent refi must be credit qualifying – UFMIP/Annual MIP will be calculated using new credit score and LTV and Risk-Based Premium Charts in effect at time of refi • eligible for Streamline refi after credit qualifying refinance • Streamline Refinances – New case number ordered before July 14, 2008 • Current Streamline Refi – UFMIP is 150 basis points and Annual MIP is 50 basis points • Subsequent Streamline Refis – UFMIP will be 100 basis points and Annual MIP will be 50 basis points

  14. Mortgagee Letter 08-16Risk-Based Mortgage Insurance Premiums • Refinance Transactions, Cont’d • Streamline Refinances – New case number ordered on or after July 14, 2008 but existing case number issued prior to July 14, 2008 • Current Streamline Refi – UFMIP is 100 basis points and Annual MIP is 50 basis points • Subsequent Streamline Refis – UFMP will be 100 basis points and Annual MIP will be 50 basis points • Streamline Refinances – Streamline Refi of Purchase or Credit Qualifying Refi where existing case number (for loan being refinanced) was ordered on or after July 14, 2008 • UFMIP/Annual MIP are calculated using Risk-Based Premium Charts in effect at time of refi – LTV and Credit Scores are based on previous loan’s LTV and Scores and can be found through the “Case Query” screen in FHA Connection

  15. Mortgagee Letter 08-16Risk-Based Mortgage Insurance Premiums • In order to be eligible for the reduced UFMIP, first-time homebuyer pre-purchase counseling must meet the following criteria: • Must have been completed within 12 months prior to borrower signing purchase contract • Must be completed one-on-one, in person by a HUD approved Housing Counselor • Must consist of the following minimum components: • Budgeting and credit, including an analysis of the household’s unique financial/credit situation • Assessing homeownership readiness, including an evaluation of home and monthly payment affordability • Development of a written action plan outlining the steps the household and the counselor will take to help the household meet their goals • Financing a home, including a discussion of alternative types of mortgage loans/features and special financing products, common lending documents, and steps in the loan application, approval, and closing processes • Shopping for a home, including understanding the professionals involved in the process • Maintaining a home, including preventive maintenance, taxes, and insurance

  16. Mortgage Letter 08-13FHA Secure Expansion • Comprehensive re-structuring of FHA’s current refinance program (Streamline Refinance transactions excluded) • Permits lenders to refinance borrowers who are delinquent on existing non-FHA adjustable rate mortgages because of a rate reset • Includes borrowers who experienced some delinquencies on non-FHA ARMs in the 12 months leading up to the rate reset • Includes borrowers who have been delinquent on non-FHA ARMs due to extenuating circumstances • Permits qualifying mortgage arrearages to be included in refinance

  17. FHA Secure Expansion FHA Secure All non-FHA to FHA Rate and Term Refinances • Conventional Fixed Rate or ARM loans where the mortgage payments are current • Max Mortgage – FHA county limit or appropriate LTV calculation • Max LTV – Standard LTV Calculation • Satisfactory mortgage payment history verified through mortgage servicer or canceled checks • New, existing or modified subordination agreements allowed - Max CLTV 100% • Minimum credit score 580 with Total Scorecard “Refer” response • Minimum credit score 550 with Total Scorecard “Accept” or “Approve” response • Ratios 31/43 – Ratios may be exceeded with Total Scorecard “Accept” or “Approve” response or compensating factors • Max Cash-in-hand $500 • UFMIP and monthly MIP based on Risk Based Pricing Matrixes in effect at time of refi

  18. FHA Secure Expansion • Delinquent non-FHA ARMS – Delinquency was caused by ARM reset or extenuating circumstances AND meets one of the following criteria – delinquent non-FHA fixed rate mortgages are not eligible for refinance • Borrower made monthly mortgage payments in the month due for the most recent six months prior to rate reset or • No more than one 60-day or two 30-day late mortgage payments in the 12 months prior to the rate reset or extenuating circumstance that caused the delinquency or • No more than one 90-day or three 30-day late mortgage payments in the 12 months prior to the rate reset or extenuating circumstance that caused the delinquency and LTV is 90% or less • Borrowers delinquent on interest-only loans or payment option ARMS may not have had any 30-day lates in the most recent six months prior to rate reset • Borrowers with less than 12 months mortgage history must demonstrate that all payments were made within the month due for the most recent six months prior to rate reset or extenuating circumstance • FHA Secure inclusion of currently delinquent mortgages is set to expire with originations on or before 12/31/08 • Only FHA refinance for mortgage loans that are currently delinquent – Current mortgage being refinanced must be a non-FHA ARM • Maximum LTV – Standard LTV Calculation

  19. FHA Secure Expansion FHA Secure Cont’d • Maximum CLTV 100% • Loan amount may not exceed the lower of FHA’s county limit or $500,000 • LTV is calculated using current appraised value, regardless of seasoning • UFMIP is 225 basis points for all currently delinquent mortgages • Annual MIP is 55 basis points for all currently delinquent mortgages that exceed 95% LTV and 50 basis points for LTVs 95% and less • Qualifying Ratios are 31/43 for borrowers who have no more than one 60-day or two 30-day mortgage lates in most recent 12 months prior to reset. 31/43 ratios may be exceeded with an “Approve” or “Accept” rating through Total Scorecard orastrong compensating factors(s) • Borrowers with one 90-day or 3 30-day mortgage lates in most recent 12 months prior to reset may not exceed ratios of 31/43, regardless of Total Scorecard response and/or compensating factors • Non-Occupant Co-Borrowers permitted • Loan amount may include mortgage arrearages incurred after reset or extenuating circumstances • Loan amount may include 2nd mortgages seasoned at least one year. For Home Equity lines of credit, there may not have been any draws in excess of $1000 in the most recent 12 months • Max cash-in-hand $500

  20. FHA Secure Expansion FHA to FHA Rate and Term Refinance • Borrower must be current on existing mortgage debts and have acceptable mortgage payment histories • Maximum LTV – Standard LTV Calculation • Maximum CLTV 100% • Loan Amount may not exceed FHA county limit • LTV is calculated using current appraised value, regardless of seasoning • Qualifying ratios are 31/43 but may be exceeded with “Accept” or “Approve” response through Total Scorecard or with compensating factor(s) • Non-occupant co-borrowers permitted • Loan amount may include 2nd mortgages seasoned at least one year. For Home Equity lines of credit, there may not have been any draws in excess of $1000 in the most recent 12 months

  21. FHA Secure Expansion • FHA 85.01 - 95% Cash-Out Refinance All FHA to FHA or non-FHA to FHA Cash-Out Refinances • Property must have been owned for at least the most recent 12 months • All existing Mortgages must have been current in the most recent 12 months • 1-2 Unit Properties • Max Loan amount $417,000 • Appraised Value is used to determine LTV • Max CLTV 100% when re-subordinating or modifying existing subordinate financing • New subordinate financing not allowed • Ratios 31/43 – May be exceeded with Total Scorecard “Accept” or “Approve” response or compensating factors • Non-Occupant Co-Borrowers not permitted for LTVs > 85% • Minimum Credit Score 580 • Manufactured Home – Minimum Score is 580 and Total Scorecard “Accept” or “Approve” response • Cash-in-hand limited to $200,000 • If property is located in a declining market, max LTV is 90% • Borrowers in arrears on their current mortgage are not eligible

  22. FHA Secure Expansion FHA Cash-Out Refinances with LTVs 85% or Less • Loan amount may not exceed FHA county limit • 1-4 unit properties • No seasoning required • Non-occupant co-borrowers permitted • Max CLTV 100% when re-subordinating or modifying existing subordinate financing • New subordinate financing not allowed • Ratios 31/43 – May be exceeded with Total Scorecard “Accept” or “Approve” response or with compensating factors(s) • Minimum Credit Score 580 for Total Scorecard “Refer” responses • Minimum Credit Score 550 for Total Scorecard “Accept” or “Approve” responses • Maximum cash-in-hand is $200,000 • Borrowers in arrears on their current mortgage are not eligible

  23. Streamline Refinances • FHA to FHA Refi – Intended to lower monthly P & I payments • May be originated with or without appraisal • Cash back at closing limited to $500. • A delinquent mortgage is generally not eligible for streamline refinancing until the loan is brought current. However, if the mortgage is delinquent by no more than two monthly payments, the re-financing lender may pay the borrower’s mortgage to bring the payments current provided no obligation is placed on the borrower to repay the funds used to bring the mortgage current. • If the mortgage is delinquent by more than two months, refer to ML 94-30. • If the loan is an ARM to fixed rate loan, all mortgage payments must have been made within the month due for the past twelve months or period of time that the loan has been in force if shorter. • On an ARM-to-fixed rate streamlined refinance, if the new fixed-rate mortgage will be at a rate lower than the existing rate of the ARM, the 30 days late, rule is not applicable. • Flagstar Bank will order and review a credit report on all streamline refinances without an appraisal – minimum credit score = 550 unless loan is Flagstar Bank to Flagstar Bank streamline refinance • Flagstar Bank will complete a verbal verification of employment for all streamline refinances without an appraisal • VOM or other documentation is required which includes principal balance, date loan originated, names of original borrowers and type of loan

  24. Streamline Refinances, Cont’d • Max CLTV - Subordinate financing may remain in place without regard to the total indebtedness (the combined amounts of the first and subordinate mortgages may exceed the maximum mortgage limit for the area but may not exceed 100% CLTV) • Social Security Numbers must be verified for all borrowers. • A pay-off statement from the current lender showing the unpaid principal must be included in the endorsement binder. • The amount of the existing first mortgage may not include delinquent interest. • Original principal balance must be verified from the Refinance Authorization screen in the FHA Connection since this will reflect any principal reductions for the previous loan. • An ARM may by refinanced to another ARM, provided that an immediate payment reduction occurs AND that the maximum interest rate of the new mortgage does not exceed the maximum interest rate of the loan that’s being refinanced • An ARM may be refinanced to a fixed-rate mortgage, provided the interest rate on the new fixed-rate mortgage will be no greater than 2 percentage points above the current rate of the ARM. In addition, all mortgage payments in the most recent 12 months must have been made within the month due (or for the time the mortgage has been in force, if shorter) If the new mortgage rate will be lower than the existing ARM rate, the “within the month due” is not applicable

  25. Streamline Refinances, Cont’d • A Hybrid Arm, (3/1 and 5/1 ARMS) may be streamline refinanced to a fixed rate mortgage, with or without appraisal, provided that the payment will not increase more than 20% and all mortgage payments have been made within the month due for at least the past 12 months or the period the mortgage has been in force, if shorter. • Any streamline refinance of a 30-year mortgage on a principal residence may be refinanced to a shorter term mortgage as long as the new monthly principal and interest does not increase more than 20%. • A fixed-rate mortgage may be refinanced to a one-year ARM, provided the interest rate of the new mortgage is at least 2 percentage points below the interest rate of the current mortgage • A fixed-rate mortgage or any ARM loan may be refinanced to a hybrid (3/1 and 5/1 ARM), provided that an immediate payment reduction occurs. • A holding period of six months applies when: (1) the borrower obtained the loan via non-qualifying assumption; or (2) when a borrower is deleted due to devise or descent of law (e.g., divorce, death, etc.) and a quit-claim of interest has been executed. Full credit qualifying is required if held less than six months and/or if due-on-sale clause is triggered (1-12-C)

  26. Streamline WITH Appraisal • Term of the new loan can be up to 30 years. • If an appraisal is ordered but the borrower decides to proceed with a streamline without an appraisal, the appraisal may be voided. The case type in FHA Connection must be changed to reflect that the case number is now a streamline without an appraisal

  27. Streamline WITHOUT Appraisal • Term of the new mortgage is the lesser of 30 years or the un-expired term of the existing mortgage plus 12 years • This is the ONLY type of refinance that can be accomplished in condominium projects that are no longer approved

  28. FHA Secure Delinquent Non-FHA ARM to FHA Use the LOWER of the following three calculations: $______________ Appraised Value Multiplied by Appropriate LTV Factor Low Closing Cost States - 98.75% - Property Value $50,000 or less 97.65% - Property Value > $50,000 - $125,000 97.15% - Property Value > $125,000 High Closing Cost States 98.75% - Property Value  $50,000 X_______________ 97.75% - Property Value > $50,000 =_______________ Maximum Mortgage Before UFMIP OR

  29. FHA Secure Delinquent Non-FHA ARM to FHA $_______________ Principal Balance on Existing First Lien (includes existing balance, pre-payment penalties, late payment charges, attorney fees, inspection fees, and other charges traditionally associated with servicing mortgages. +_______________ PITI arrearages incurred after rate reset or extenuating circumstances (if incurred prior to rate reset or extenuating circumstance, may not be included) +_______________ Allowable Borrower-Paid Closing Costs +_______________ Junior liens over 12 months old – No seasoning requirement for purchase money seconds. Equity lines in excess of $1000 advanced in last 12 months are not eligible for inclusion (unless documented for repair/renovation of subject property +_______________ Appraiser-Required Repairs +_______________ Equity to Ex-Spouse +_______________ Prepaid Expenses +_______________ Reasonable Discount Points =_______________ Maximum Mortgage Before UFMIP OR if borrower has one 90-day or three 30-day delinquencies prior to rate reset or extenuating circumstance

  30. FHA Secure Delinquent Non-FHA ARM to FHA $________________ Appraised Value X________________ 90% =________________ Maximum Mortgage Before UFMIP

  31. FHA SecureNon-FHA to FHA – Not Delinquent Use the LOWER of the following two calculations: $______________ Appraised Value Multiplied by Appropriate LTV Factor Low Closing Cost States 98.75% - Property Value $50,000 or less 97.65% - Property Value > $50,000 - $125,000 97.15% - Property Value > $125,000 High Closing Cost States 98.75% - Property Value  $50,000 X_______________ 97.75% - Property Value > $50,000 =_______________ Maximum Mortgage Before UFMIP OR

  32. FHA SecureNon-FHA to FHA – Not Delinquent $_______________ Principal Balance on Existing First Lien (includes existing first lien, prepayment penalties, late payment charges, attorney fees, inspection fees, and those other charges traditionally associated with servicing mortgages) – arrearages may not be included +_______________ Allowable Borrower-Paid Closing Costs +_______________ Junior liens over 12 months old – No seasoning requirement for purchase money seconds. Equity lines in excess of $1000 advanced in last 12 months are not eligible for inclusion (unless documented for repair/renovation of subject property) +_______________ Appraiser-Required Repairs +_______________ Equity to Ex-Spouse +_______________ Prepaid Expenses +_______________ Reasonable Discount Points =_______________ Maximum Mortgage Before UFMIP

  33. FHA – FHA Rate and Term Refi Use the LOWER of the following two calculations: $______________ Appraised Value Multiplied by Appropriate LTV Factor Low Closing Cost States 98.75% - Property Value $50,000 or less 97.65% - Property Value > $50,000 - $125,000 97.15% - Property Value > $125,000 High Closing Cost States 98.75% - Property Value  $50,000 X_______________ 97.75% - Property Value > $50,000 =_______________ Maximum Mortgage Before UFMIP OR

  34. FHA – FHA Rate and Term Refi $_______________ Principal Balance on Existing First Lien (includes existing first balance, prepayment penalty, up to one month monthly MIP, the mortgage payment that was due on the first if not already paid, up to 30 days interest for the current month, late charges, and escrow shortages) – arrearages may not be included +_______________ Allowable Borrower-Paid Closing Costs +_______________ Junior liens over 12 months old – No seasoning requirement for purchase money seconds. Equity lines in excess of $1000 advanced in last 12 months are not eligible for inclusion (unless documented for repair/renovation of subject property) +_______________ Appraiser-Required Repairs +_______________ Equity to Ex-Spouse +_______________ Prepaid Expenses +_______________ Reasonable Discount Points -_______________ MIP Refund, if applicable =_______________ Maximum Mortgage Before UFMIP

  35. Cash-Out Refinances Use the appropriate calculation: $_______________ Appraised Value X_______________ 95% - if owned > 1 year prior to loan application =_______________ Maximum Mortgage Before UFMIP OR when property is owned < 1 year prior to loan application $_______________ Appraised Value X_______________ 85% =_______________ Maximum Mortgage Before UFMIP

  36. Streamline Refi Without Appraisal Use the LOWER of the following two calculations: $______________ Original Principal Balance (from “refinance authorization” screen in FHA Connection) OR $_______________ Principal Balance on Existing First Lien (includes existing balance, up to one month monthly MIP, the mortgage payment that was due on the first if not already paid, up to 30 days interest for the current month, late charges, and escrow shortgages) – arrearages may not be included +_______________ Allowable Borrower-paid Closing Costs +_______________ Prepaid Expenses +_______________ Reasonable Discount Points - _______________ MIP Refund, if applicable =_______________ Maximum Mortgage Before UFMIP

  37. Streamline Refi With Appraisal Use the LOWER of the following two calculations: $______________ Appraised Value Multiplied by Appropriate LTV Factor Low Closing Cost States 98.75% - Property Value $50,000 or less 97.65% - Property Value > $50,000 - $125,000 97.15% - Property Value > $125,000 High Closing Cost States 98.75% - Property Value  $50,000 X_______________ 97.75% - Property Value > $50,000 =_______________ Maximum Mortgage Before UFMIP OR

  38. Streamline Refi With Appraisal $________________ Principal Balance on Existing First Lien (includes existing balance, up to one month monthly MIP, the mortgage payment that was due on the first if not already paid, up to 30 days interest for the current month, late charges, and escrow shortgages) – arrearages may not be included +_______________ Allowable Borrower-paid Closing Costs +_______________ Prepaid Expenses +_______________ Reasonable Discount Points -_______________ MIP Refund, if applicable =_______________ Maximum Mortgage Before UFMIP 

  39. Mortgagee Letter 2006-04Revised Borrower’s closing costs guidelines • Lenders may charge and collect fees that are reasonable and customary • These fees may be used as part of the borrower’s 3% investment, excluding discount points • Borrowers may not pay a Tax Service Fee • Flagstar Bank’s tax service fee is $69 • Seller contributions still remain at 6% • Flagstar Bank charges an Admin Fee for all FHA loans (“commitment fee” for properties located in New Jersey and North Carolina) • Broker - $550 • Correspondent - $520 • FHA DE - $150 • When Flagstar Bank prepares closing docs, add $150

  40. Basic Qualifications • Must be able to afford the mortgage payment • Must meet FHA credit requirements (Refer Response only) • Must meet Flagstar Bank’s credit score requirements • Must meet employment requirements • Must meet required cash investment from own funds or other acceptable source • Must occupy property as primary residence • Sales price must be supported by appraisal • Property may not have any visible health or safety issues • Financing available on 1-4 unit properties with owner occupancy

  41. Products Available • Fixed rate with 15, 20, 25 & 30 year terms • 1 year, 3/1 and 5/1 Adjustable rate loans • Cash out refinances up to 95% LTV • Rate & Term Refinances, Cash-out Refinances, Streamlines with or without appraisals • Single-family & Multi-unit family – up to 4 units with owner occupancy • Approved Condos & Spot Condos • Double-Wide Manufactured Homes (Kentucky, New York, Puerto Rico and U.S. Virgin Islands excluded) • New Construction • PUDS • Disaster Victims Mortgage • FHASecure – Temporary Product

  42. Credit Analysis The purpose of underwriting is to determine the borrower’s ability and willingness to repay the mortgage debt to eliminate the risk of future default or foreclosure, and to examine the property to determine sufficient collateral.

  43. Borrower’s Credit • Past credit performance is the most useful guide in determining credit attitude • Timely payments on current & past obligations represent reduced risk • Credit history that shows continuous slow pays, judgments and/or collections increases the overall risk and requires strong compensating factors for approval • A pattern of derogatory credit history increases risk • Isolated occurrences of derogatory credit reduce risk • The Underwriter must determine if poor credit performance is based on a disregard for financial obligations or by factors beyond the borrowers control • Minor credit issues occurring 2 or more years in the past do not require explanation and are not considered high risk • Major credit issues including judgments, collections and recent credit problems require written explanation and increase the credit approval risk

  44. Borrower’s Credit, Cont’d • Credit explanations must make sense and be consistent with other file data • High emphasis is placed on satisfactory histories for current housing and/or rent, utilities, secured installment debts and then revolving and unsecured debts • Payment history on the borrower’s housing obligation has significant importance in evaluating credit • Verification of current housing must be obtained directly from Mortgage company via VOM or included on credit report

  45. Borrower’s Credit, Cont’d • Verification of current rent must be obtained directly from an apartment complex or rental management agency. In some cases, cancelled checks, copies of money order receipts or bank statements will be required • Undisclosed debts must be explained – only funds from secured debts may be used for borrower’s down payment, closing costs and pre-paids – funds from revolving or other unsecured loans are not eligible as all or part of borrower’s investment • Credit inquiries in the most recent 90 days must be explained • Read all findings to determine specific requirements

  46. Judgments • Court ordered judgments MUST be paid in full, regardless of Total Scorecard response • An exception may be granted if the judgment has been in repayment for at least 12 months with an acceptable payment arrangement letter, satisfactory history and debt included in ratio Collections • FHA DOES NOT REQUIRE COLLECTIONS TO BE PAID OFF AS A CONDITION OF MORTGAGE APPROVAL, however, collections and judgments indicate the borrower’s regard for credit obligations and MUST be considered in the underwriter’s overall analysis • All collections & judgments, regardless of time frame must be explained Mortgage Foreclosure • Unless an “Accept” or “Approve” response is received from Total Scorecard, borrowers with a previous foreclosure or deed-in-lieu of foreclosure will not be eligible for FHA financing if the foreclosure or deed-in-lieu of foreclosure occurred within the past three years

  47. Chapter 7 Bankruptcy • FHA insurable 2 years or more from BK-7 discharge date (application date not closing date) • Must document satisfactory history on any re-established trade lines • Underwriter may require 3 or more satisfactory non-traditional trade lines • Must provide statement from borrower who has chosen not to re-establish any trade lines after BK 7 or has no non-traditional trade line sources • Unless an “Accept” or “Approve” response is received from Total Scorecard, a borrower who has a BK-7 discharged less than 2 years will not be considered for approval • No BK 7 discharged less than 12 months from application date will be considered • Unless an “Accept” or “Approve” response is received from Total Scorecard, borrowers who have late payments after a BK7 has been discharged are limited to an 85% LTV on a cash-out refinance

  48. Chapter 13 Bankruptcy • Must document at least 1 year into the payout period plan has elapsed • Must document satisfactory payment history • Must obtain court permission to enter into new mortgage • Must include Chapter 13 payment in the debt ratio if the BK is not paid off • Borrowers currently in a Chapter 13 BK are limited to 85% LTV on cash-out refinances, regardless of Total Scorecard response Consumer Credit Counseling • Must document that at least 1 year into the payout period plan has elapsed • Must document satisfactory payment performance and must document the debts/trade lines included in the payment plan • Must obtain Counseling Agency permission to enter into new mortgage

  49. Mortgagee Letter 2008-11Non-Traditional Credit - Borrower With No Credit Score • 3 credit references required with at least 1 from Group I • Group I: Rental history, utility company including gas, electricity, water, land-line home telephone or cable TV • Group II: Insurance (medical, auto, life, renters insurance) if not payroll deducted; payment to child care providers-made to a business; school tuition; retail stores (department, furniture, appliance, specialty, rent to own, internet/cell phone); 12 month history of savings by regular deposits (quarterly/non-payroll); personal loan with repayment terms in writing along with cancelled checks • Non-traditional credit must be verified by a credit vendor on a NTMCR (non-traditional mortgage credit report) • If a NTMCR is not used, all credit references must be documented with the most recent 12 months cancelled checks

  50. Evaluating Non-Traditional Credit • No history of delinquency on rental history • No more than 1x30 on payments to other creditors • No collections accounts/court records (other than medical) filed within the past 12 months

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